All of this makes creating a term-head document a long and complicated process, and if there are misunderstandings, the deal can end up in first place after months of hard work if it`s not completely canceled. Some heads of agreement will include provisions that require the payment of down payments or fees to deter another party from moving away from the business. However, this is relatively unusual. If the other party doesn`t seem interested in finding heads of terms, you should ask yourself why, as this could indicate that they are not as committed as making sure the transaction takes place. The fact that this is not a legal requirement does not prevent a term from being one of your most important documents. Although it only covers the transaction in broad outline, it still contains a number of conditions of purchase or sale that must be carefully weighed. A set of agreements, terms and conditions or letters of intent is a non-binding document that describes the main issues relating to a preliminary sale, partnership or other agreement.  A head of agreement document is only enforceable if it is incorporated into a parent contract and subsequently agreed, unless otherwise stated. Until then, an agreement is not legally binding (see Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd  2 NZLR 433). A document of heads of agreement is only intended to serve as an introductory agreement on the basic terms of a transaction or partnership. This is done in the pre-contractual phase of the negotiations. From the outset, an agreement will not be comprehensive enough to cover all the necessary details of a formal binding agreement. But its lack of detail is also its strength; parties are less likely to find something they disagree with.
So while a Heads of Terms agreement isn`t usually legally binding, that doesn`t mean you can ignore it altogether. This is another reason why expert advice should be consulted when it is created. If a party intends for the agreement to be legally binding at this early stage, it is essential that it seek legal advice to ensure that this intention is clear and that the agreement is comprehensive enough to form a legally binding agreement. This approach can still be fraught with pitfalls if a dispute arises before the complete documentation is entered. The parties may question whether such an obligation is worthwhile, but in our view, formalizing a condition sheet into a « preliminary » or « process » legal agreement, as noted above, does not necessarily have to be an expensive or time-consuming task – especially if the parties have already negotiated and agreed on the most important terms of business law. In addition, it can have significant advantages: a Heads of Terms solves this problem by providing a tangible document detailing the agreed agreement. This way, it is clear what the details of the transaction will be, provided that nothing extraordinary is discovered during due diligence. The main goal of Heads of Terms is to create an element of clarity from the beginning to the end of the transaction.
This way, as the weeks and months go by and the deal gets closer and closer to the conclusion, both sides have a documented plan to remind them of exactly what they agreed on. .